Taxable Annuity Distribution

[Gongolo]

I have a non qualified Variable Annuity purchase with after Tax money.

The annuity is in the accumulation Phase

I withdraw a partial amount.    Form 1099R reported the entire amount as Taxable.

What about the basis, shout it not be prorated?   

Taxable amount = Distribution X (1 - Basis/ContractValueBeforeDistribution)

[DianeW777 · Accepted solution]

Yes, if you paid for the annuity with after tax dollars, then you have what is called a tax basis. However depending on whether you are retirement age depends on how it will be treated for tax purposes.

• Non-qualified annuities are purchased with after-tax dollars so only the earnings on your investment are taxable. There is no legal age requirement for withdrawing from a non-qualified annuity.
• IRS Publication 575
• IRS Publication 939 (General Rule for Annuities-Worksheets on page 12 & 13)
  • After you enter the 1099-R, you are asked a series of questions.  Each time, a question will ask if the amount in 2b is used as the taxable amount.  If you say No, you will continue on and will be given a choice between the Simplified or General Method. This will calculate the taxable amount taking into account your cost in the plan.  You will be allowed a tax free portion each month for as long as you take distributions at the annuity start date.

Distribution Before Annuity Starting Date From a Nonqualified Plan

If you receive a nonperiodic distribution before the annuity starting date from a plan other than a qualified retirement plan (nonqualified plan), it is allocated first to earnings (the taxable part) and then to the cost of the contract (the tax-free part). This allocation rule applies, for example, to a commercial annuity contract you bought directly from the issuer. You include in your gross income the smaller of:

• The nonperiodic distribution, or

• The amount by which the cash value of the contract (figured without considering any surrender charge) immediately before you receive the distribution exceeds your investment in the contract at that time.

Distributions At The Annuity Starting Date:  

Who must use the General Rule.  You must use the General Rule if you receive pension or annuity payments from a:

• Nonqualified plan (such as a private annuity, a purchased commercial annuity, or a nonqualified employee plan

[birdylo]

I tried to follow your directions to figure the non taxable portion of my nonqualified annuity but the software must have been changed this year because I never got the link to proceed to the General Rule computation.  My 1099-R reports a 7D code in Box 7 designating the annuity as nonqualified.  I'm using the Premier version.  Please help.

[DianeW777]

Of course.  If this is a Form 1099-R (as opposed to a CSA-1099R) the General Rule question does not come up in TurboTax Online.  You should determine the amount of taxable distributions if your form has a check in the box 'Taxable amount not determined', then enter that amount in box 2. 

Otherwise you can choose to switch to the download version which does have this question for the 1099R.  Either way it takes manual calculations from you so it's really your choice. The most important action is to tax the correct amount and no more.

• How do I switch from TurboTax Online to TurboTax CD/Download?

Images from TurboTax Desktop for your review.

@birdylo 

[birdylo]

Thank you so much, DianeW777!!  This will help A LOT!!!